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It is not a secret that over the past decade, IP assets have been growing in value and gradually emerging as the most valuable and critical asset class for many companies. This is especially true for companies involved in technology or any aspect of product research and development. Yet, one issue that often remains unaddressed by business enterprises is the IP-related risk. To make sure that their companies remain on track and their IP remains uncompromised and unchallenged, corporate management and boards of directs must take IP risks seriously and create strategies to assess those risks. Quite often IP-related risks depend not only on actions of these companies but those of their competitors, unrelated third parties, government agencies and even illegal operators. As trusted counselors to our clients, we continuously import that all companies that increasingly rely on their IP asset base must create specific protocols to:

Critically review access to the IP-related information and restrict disclosure only to those individuals whose input is critical to creation and development of the relevant IP;

Review confidentiality and non-disclosure protocols and agreements with all independent contractors and third-party vendors;

Review and monitor the IP portfolio with a designated patent counsel to make sure that the existing patents are properly maintained, all maintenance fees are timely paid, and that the newly developed patent applications are adequately protected and prepared so as to not jeopardize the company’s interests and potential patentability of the inventions; and

Closely monitor patent and IP developments in the industry to make sure that the company’s IP is not infringed or stolen by bad actors.

The questions prudent corporate officers must ask themselves is whether they, members of their companies’ boards of directors and advisers will recognize when IP issues arise to the level of board concern. Similarly, members of the boards must ascertain whether their management can deal effectively with the IP issues and whether suitable and experienced advisers have been engaged to advise the management and the boards on these issues.

There is no question that the most eye-catching aspect of the recently promulgated federal tax reform is the reduction of the new maximum corporate tax rate to 21 percent from the current 35 percent. The new tax legislation became effective January 1, 2018, which means that many small enterprises that have been operating as either limited liability companies or S-corporations are now considering whether to reorganize as C corporations to optimize their taxation. For instance, it is predicted that many technology startup enterprises are going to take advantage of this change in 2018.

As of the beginning of this year, most small enterprises were traditionally structured as pass-through entities (limited liability companies or S corporations), where profits were taxed according to their owners’ personal tax rates. While there is some tax relief in the new legislation for some of those pass-through companies, including a temporary ability to deduct up to 20 percent of income, many enterprises could access the permanent cut by converting to full-blown C corporations. Notably, however, under the new tax code, enterprises involved in “professional services”, such as legal counsel, financial consulting or freelance design work, do not seem to qualify for this 20 percent pass-through deduction.

We strongly recommend all business owners to consult their accountants and attorneys before converting or taking any tangible steps towards changing your existing legal entity structure. Every entrepreneur and business owner must weigh benefits to their particular business and evaluate potential savings and weigh the desirability of conversion. It is important to remember that C corporations are double taxed–once on the 21 percent preferential rate, and again if and when the owners pay dividends to themselves. This means that as a result of more detailed analysis, it is quite possible that the two levels of tax will make a corporate operation far less advantageous than a partnership for many small entrepreneurs. However, if owners of the company do not intend to pay out dividends and are rather planning to re-invest a majority of profits back into the business as part of a long-term strategy, then it is likely that conversion is a viable option.

If, based on the analysis of accountants and tax professionals, a small business makes a decision to convert into a C corporation, such decision should not be taken lightly. While the immediate process of converting may take less than a week, provided your company is based in a state that allows for “statutory,” or streamlined, conversions, those companies that are formed in New York will need to take several extra legal steps, which are likely to include filing of a set of articles of incorporation with the secretary of state’s office, drafting a series of corporate bylaws, shareholder agreements and election of corporate officers and directors. The newly minted C corporation would also require owners to hold annual board meetings and issue stock certificates. Legal advisors need to be consulted with regard to legal effects of conversion on the existing company obligations, contracts and agreements with landlords, customers and vendors.

Dear Clients, Friends and Colleagues,

During Thanksgiving we all reflect on the things for which we are most grateful. All of us at Gellis Law Group are especially thankful for your trust and the opportunity to help you, your companies, and ventures to reach your business and financial goals and strive for a better future. We wish you and your loved ones a happy holiday!

This is an update for all clients of our Firm that have offices or operations in New York City. Effective October 31, 2017, it is illegal for public and private employers of any size in New York City to ask job applicant’s salary history during the hiring process. Same requirement applies to advertisements for positions, on applications, or job interviews. This newly promulgated ban prohibits all employers from inquiring about past compensation, including salary, bonuses and benefits. It further bars employers from conducting searches of public records for the purpose of obtaining salary history. The new regulation makes it illegal to rely on salary history in determining what salary and/or benefits to offer applicants.

Please let us know if you have any questions regarding this new requirement. Direct your inquiries to either ggellis@gellisgroup.com or mweiner@gellisgroup.com. Thank you.

Over the past year, the issue of Initial Coin Offerings came to the forefront of attention of financial institutions and consumers alike. While there have been some developments on this front over the past five months, on September 29, 2017, the SEC filed its first ICO-related enforcement action, SEC v. REcoin Group Foundation, LLC, et al., No. 17 Civ. 5725, in the Eastern District of New York. This action seemingly represents the SEC’s first formal enforcement proceeding against an issuer of digital tokens.

As part of the action against Maksim Zaslavskiy and his related companies, the SEC also sought and obtained orders freezing the defendants’ assets. In the complaint related to this case, the SEC alleged that the President and sole owner of the two corporate defendants, fraudulently raised at least $300,000 related to two (2) ICOs, for which no SEC registration statements were filed (nor registration exemption applicable). Tokens issued in the ICOs were purportedly backed by investments in real estate and diamonds.

The SEC alleges, however, that neither company had any significant operations. Specifically, it seems that with respect to REcoin, Mr. Zaslavskiy allegedly claimed that the company was ready to invest the ICO proceeds in real estate, and that REcoin had raised between $2 million and $4 million, while in fact no more than $300,000 was raised. With respect to the second corporate defendant, Diamond Reserve Club, Mr. Zaslaviskiy allegedly marketed “memberships in a club” that invests in diamonds and obtains discounts with product retailers to “skirt the registration requirements of the federal securities laws.” The complaint alleges that the advertised “‘memberships’ were in all material respects identical to the ownership attributes of purchasing the purported ‘tokens’ or ‘coins,’ which are viewed as securities by the SEC. Notably, it seems that neither business entity was involved in any business operations aside from soliciting funds.

SEC took the position that the tokens that REcoin and Diamond Reserve Club purported to—but never in fact did—create or sell are in fact securities subject to their jurisdiction. The SEC further noted that the stated purpose of the tokens sold in each ICO was to acquire assets that “would generate returns for investors stemming from . . . the appreciation in value of the REcoin and Diamond tokens as the Companies’ businesses grew [due] to the managerial efforts of teams of ‘experts’.”

For any of our clients contemplating structuring, marketing, and consummating an ICO, we would like to point out that the SEC gave particular attention in this enforcement action to statements about the ICOs and tokens that appeared in the whitepaper prepared for each ICO and in social media. The SEC treated these statements as subject to Rule 10b-5 and the other anti-fraud standards imposed by the federal securities laws.

For all our clients who are subject to reporting of foreign bank accounts, there has been a recent change in deadlines associated with reporting requirements. The Financial Crimes Enforcement Network (FinCEN) has announced that the recently passed Surface Transportation and Veterans Health Care Choice Improvement Act changed the annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts to April 15. It seems that this change was made in order to bring the FBAR due date in alignment with the April 15 Federal income tax filing season. Notably, the Act also mandates a maximum six-month extension of the filing deadline. This means that to implement the statute with minimal burden to the public, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. No specific requests for this extension are required. Since the federal income tax filing date for tax year 2016, will be on April 18, 2017, the FBAR deadline will be on the same day.

As outsourced general counsel to most of our clients, we have to often deal with internal employment matters for our client companies. Over the past years, overtime-pay related matters have been attracting more and more attention in a range of industries. Yesterday, on May 18, 2016 the revised Overtime Rules were released by the federal Department of Labor. The rules raise the minimum salary threshold for employees classified as “exempt” from the overtime pay requirements. The new rules go into effect on December 1, 2016 and provide, among other requirements, that:

In order to be considered exempt and ineligible for overtime wages under the “white collar” executive and administrative exemptions, most employees will need to be compensated on a salary basis of at least $913.00 per week (or $47,476.00 per year), in addition to the requirement that they perform certain delineated “exempt” duties and responsibilities. It is expected that this amount will be updated on January 1, 2020, and every three years thereafter. Non-discretionary bonuses, incentives and commissions that are paid quarterly or more frequently can count towards up to ten percent of this salary amount.

For employees to be classified as exempt under the “highly compensated exemption,” employees must actually receive a total annual compensation of at least $134,000.00 per year, and perform at least one exempt duty. If that amount is not actually received, for example because commission earnings were less than expected, an employer may bring the annual compensation to the required minimum within one month after the end of the year.

All employers irrespective of industries should be prepared to comply by December, potentially by raising salaries or by reclassifying employees as eligible for overtime pay (or non-exempt).

If you have any questions or concerns, please contact us. Our experienced team of attorneys will help you navigate the regulations to ensure that your employees are being properly classified and that your companies are in full compliance with the new Federal requirements.

As most of you know, our firm works with many startups, or emerging companies, within the framework of our “Startup Stars” program. One of the issues that we have to deal with every single emerging company client is strategizing what is the best way to obtain initial financing.

Most startups get initial funds from their founders’ savings, money from friends and family, some debt and, at a later stage, approaching professional investors. Yet, what startup teams often do not realize is that by failing to consult qualified and experienced legal counsel and not following certain procedures they might have violated federal and state securities laws already at the initial stages of procuring investment.